Iceland rising from the ashes of its 2008 economic collapse

By Simon Bowers / The Guardian, REYKJAVIK

"It cannot be accepted that Icelanders should slave away to increase such collections," Gunnlaugsson said.

Creditor groups remain circumspect, keen to get into private discussions with the new administration as quickly as possible. Behind the scenes, however, they are examining their legal options. Their goal is to strike a deal that will allow foreign creditors to access more than US$8 billion of foreign currency assets tied up with the three banks’ administrators and barred from exiting Iceland.

"We have been attempting to engage for some time and fail to understand the lack of progress from the authorities," said one source close to the creditors.

Gunnlaugsson’s rise to power shocked some observers outside Iceland, who thought the electorate might give their backing to the Left-Green-led coalition that had taken power after the banking crash and steered the country through the strictures of an IMF program.

RIGHT WING VICTORY

Instead, the Left-Greens suffered the heaviest defeat in Icelandic history after an election campaign dominated not by economic achievements, but by the fallout from the Icesave saga.

Bouncing back into office came a coalition of the two rightwing parties <> the Independence Party and Gunnlaugsson’s Progressive Party <> that had been in charge for much of Iceland’s discredited boom years between 2003 and 2008.

Not all of the foreign creditors are the vulture funds Gunnlaugsson talks of. British and Dutch taxpayers still have significant exposure to the Landsbanki administration. As priority creditors they have had almost 55 percent of their claims repaid, though the remainder will take a good deal longer. There are UK local authorities and charities, too, which entrusted more than **P**1 billion (US$ 1.6 billion) with failed Icelandic banks and are still waiting to get much of their money back.

Gunnlaugsson has promised to give further details of his populist program for tax cuts and home loan debt relief next month, and will be under pressure to show how he expects to fund such moves. It remains to be seen if he gains more from squeezing foreign creditors than he loses in terms of the damage to Iceland’s reputation among international investors.

Last month he flew to London to address the Iceland Investment Forum, finishing his speech by declaring: "Hope to see you, and your money, in Iceland."

The response, from an audience largely of Icelanders and representatives of the foreign creditors, was a ripple of nervous laughter. Gunnlaugsson will not want that laughter to grow any louder.

Full steam ahead

The Guardian, REYKJAVIK

Icelanders are fast on their way back to becoming among the richest people in the world, just five years after experiencing one of the most dramatic financial meltdowns in history.

"If you say Iceland was a ship, it [the 2008 banking crash] caused a lot of damage to the bridge, but the body of the ship and the engine were still in good order," said then-Icelandic Prime Minister Geir Haarde.

By August 2011, Iceland had graduated from its IMF bailout program with flying colors.

Since then, with government borrowing receding, Iceland has been able to return to the international debt markets, and has begun repaying its emergency loans. Meanwhile, the economy <> having shrunk more than 10 percent in two years <> bounced in 2011 and last year, and will grow by about 1.9 percent this year.